Doug French

Economics professor Bernard Malamud not once but twice invited the crowd in Las Vegas to visit nearby Hoover Dam to see for themselves an example of the productive assets that were created by Franklin Delano Roosevelt's (FDR) New Deal. Professor Malamud was recruited to plead the Keynesian side of the argument in an "FDR's Depression Policies: Good Deal or Raw Deal?" debate with the Foundation for Economic Education's (FEE) Lawrence Reed during FreedomFest.

I finished my masters degree from UNLV under the tutelage of Murray Rothbard but I started my coursework with a class or two from professor Malamud, who, while being as Keynesian as they come, is at least sympathetic to the Austrian view when it comes to explaining speculative bubbles. He certainly took on Mr. Reed with good humor in front of an unfriendly, anti-FDR audience.

Malamud's thesis is that no matter what your ideology, New Deal economics worked! The economy was in the midst of a terrifying deflation spiral. Treasury Secretary Andrew Mellon was saying things like "Liquidate labor, liquidate stocks, liquidate farmers." The money supply was dropping, strangled by a rigid gold standard. The private sector was not eager to invest, so an alphabet soup of federal programs — like the CCC, CWA, WPA, FDIC, SEC, FSLIC — had to fill the void, putting people back to work, stimulating aggregate demand and providing for FDR's four freedoms: freedom of speech, freedom of belief, freedom from want, and freedom from fear. At the same time, FDR's "playing with the price of gold" as Malamud put it, loosened up the money markets.

Recovery (or reinflation) started as soon as 1933 and was only sidetracked in 1937, when the stimulus was pulled back. The "mistake of 1937" was made, according to the UNLV professor, when FDR's administration went back to listening to Andrew Mellon and instituted the austerity programs FDR had promised during his initial campaign.

When his turn came for rebuttal, Reed joked that he "felt like a mosquito at a nudist camp; I know what I need to do, but I don't know where to begin." After his free-market case was made and the Keynesian case was destroyed, Reed quipped, "The economy recovered when FDR didn't."

Doug French

Doug French is is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply and Walk Away: The Rise and Fall of the Home-Ownership Myth

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